Reference Pricing – Does It Add Up?

Why does it matter? The private health insurance (PHI) industry has been actively lobbying the government to cut the costs of premiums, which has resulted in benefits and choice being slashed for hard working Australian families. A tactic of the PHI industry is to try to focus as much blame, for the high premiums they charge, onto others, including medical technology innovators.

What is their argument? The PHI industry believes the cost of medical devices, as well as keeping vulnerable people who are suffering from a mental health condition in hospital too long, is causing premiums to rise. The PHI industry also wants the government to implement ‘international reference pricing’ to further cut into the prices of medical devices in Australia.

This is where the ‘apple and oranges’ comparison comes into play. Let’s explain: Like any product or service, the price for medical devices can vary from one country to another. Just as the price of a Toyota Sedan in Texas might be different from the price of a Toyota Sedan in Sydney or Adelaide.

What causes the difference in price? The price difference can be attributed to several factors, including:

Differences in healthcare systems;

Differences in purchasing arrangements and market segmentation;

Differences in price/benefit determination;

Differences in volumes of devices being used;

Differences in the level of technical manufacturer support needed;

Geographical differences; and

Economic difference.

Now despite all these difference that can affect price, the total PHI spend on medical devices is just 10%. Thanks to, what is called, the Prostheses List (PL), Australians can access innovative and leading medical devices, giving them certainty of access and cost (currently nil) to a wide range of prostheses.

KEY INSIGHTS: Comparisons across different markets will result in PL benefit adjustments that could reduce patients’ access to devices recommended by their physicians and force patients to pay more for the same products.

The Productivity Commission released a report in 2001 relating to international price comparisons of pharmaceuticals which said: “It’s difficult to identify robust specific explanations for the observed bilateral price differences. Rather, the price differences are probably due to a combination of influences, including systemic differences in health systems…”